Why Core Banking Systems Lack Sufficient Collection and Recovery Modules
Not that long ago, there were hundreds of core banking system choices. Today, a tenth of them still exist. Accruing interest, posting payments, producing statements – the core essentials of loan and deposit account servicing – are the essences of these systems' existence.
Today’s market is very different than twenty years ago. Mergers and acquisitions have not just reduced the number of banks and credit unions; the core system provider count has dramatically dwindled. Now, core account servicing is a commodity under intense price wars. Fewer institutions, fewer providers, a serious and sustained down economy is not a great incubator for new technologies.
The surge in regulatory changes brings unreasonable pressure to these same core providers who are trying to accomplish more with less. Accommodating regulatory change compliance, in an aging technology base, with fewer development resources is a pretty high bar to get over.
Fewer core systems, through mergers and acquisitions, forces enhancements to the surviving core to handle the unique special capabilities of that acquired (soon-to-be sunset) core (to protect that acquired core’s clients). That development pressure occurs in the environment where the acquirer is trying to reap the acquired benefits of lower operating costs to protect their net income and show a solid return on their investment (their acquisition). There is less or no pressure to enhance the native collections module of a core to boost their client’s net income or to strengthen their client’s collection compliance.
Mobile is here. Mobile everything is on the horizon. Huge core vendor competitive pressure is placed on moving every financial institution’s clients’ touch to a mobile device. Development resources are heavily focused on this new world, further dampening opportunities to boost that core system’s native collection module.
Core system selection decisions are not won or lost on the strength of its collection module. Collection Systems are typically a ‘no charge’ core feature. Core clients must ask, “Did you get what you paid for?”
The Impact of Collection Compliance on Costs
A few short years ago, collection compliance was not a phrase even spoken. Today’s banker, who sells mortgages, insures loans, and sees regulators far too often, knows all too well that collection compliance missteps can be very costly. Reducing collection compliance failure penalties was never a net income discussion, until recently.
The US economy places strain on the never-ending flow of core enhancements to maintain or grow each core system’s market position. Insurers, investors, guarantors, and regulators are all tightening collection steps. They are shining bright lights on collection compliance, looking for missteps in an increasingly complex set of often conflicting regulations and requirements. However, core providers are not dedicating development staff to boost that core collection module. They can’t afford to. If you are using your core system’s collection module, ask your collectors when they last saw any or a major collection system enhancement. Ask them how that matches to changes you have seen in collections to comply with Freddie, Fannie or regulators. Ask your CFO if collection mistake fines and penalties have grown. How much has the collections world changed recently, and how much has your collector’s primary tool changed to meet this new environment?
How can a core firm product manager allocate precious, dwindling, and expensive software development resources on a lower-priority, non-revenue generating software development used by few employees at their customers’ collection system?
How Much is “Free” Hurting Your Net Income?
What bank or credit union leader is not feeling income pressure? The bank or credit union must do more with less; contain costs, and protect or grow income. Leveraging specialized best-of-breed technology can help to reduce outstandings; it will prevent some charged offs and lower ALLL – all boosting income.
How much must a bank or credit union’s total outstanding delinquent accounts reduce – to drop ALLL – to be important? What reduction in charged off accounts must occur before the CEO takes notice? Will reduction in collection fines or penalties impact net income sufficient to matter? Is that core system’s free collection module – only used by a limited number of staff – really costing you much more than you truly appreciated?
What Can You Do?
Seek a best-of-breed collection and recovery specialty firm; a company that speaks to protecting and growing net income and strengthening collection compliance. Leveraging contemporary technology to deliver premium collection and recovery results could be a great first step to protect and grow net income, increase collection compliance and grow recovery income.